From whom should you source your supplies under GST regime

Consider the following scenario under GST.

A registered dealer and an unregistered dealer sell the same goods as follows:

Seller Registered Dealer (X) Unregistered Dealer (Y)
Value of Goods 100 105
GST @ 12%  12 NIL
Total 112 105

The question is whom should a buyer (A) Registered Dealer and (B) Unregistered Dealer purchase from?

The Sale is made at a price of Rs. 120 + GST by Registered Dealer and Rs. 145 by Unregistered Dealer

[A] Computation for Registered Dealer

SALE Purchase from Registered Dealer (X) Purchase from Unregistered Dealer (Y)
Value of Goods 120.00 120.00
GST @ 12%   14.40   14.40
Total 134.40 134.40
PURCHASE
Value of Goods 100.00 (Relevant Cost) 105.00
GST @ 12%   12.00     0.00
Total 112.00 105.00 (Relevant Cost)
NET
Profit / Value Added 20.00 15.00
GST Payable   2.40 14.40
Total 22.40 29.40

Clearly, for a registered dealer, it will be imperative to factor in the pre-GST cost as GST paid on inputs is available for set-off as tax credit.

[B] Computation for Unregistered Dealer

SALE Purchase from Registered Dealer (X) Purchase from Unregistered Dealer (Y)
Value of Goods 145.00 145.00
GST @ 12%    0.00      0.00
Total 145.00 145.00
PURCHASE
Value of Goods 100.00 105.00
GST @ 12%   12.00     0.00
Total 112.00 (Relevant Cost) 105.00 (Relevant Cost)
NET
Profit / Value Added 33.00 40.00
GST Payable   0.00   0.00
Total 33.00 40.00

Also, for a unregistered dealer, it will be imperative to factor in the post-GST cost as GST paid on inputs cannot be utilized for set-off as input tax credit.

In the given scenario,

  • The Selling Registered Dealer (A) must purchase inputs from Registered Dealer (X).
  • The Selling Unregistered Dealer (B) must purchase inputs from Unregistered Dealer (Y).

While the impact of the above principle so deduced on profitability will be on all sectors and some businessman are used to calculate costing of goods similarly while making decision of Local / Interstate purchases subject to VAT (Available for Input Tax Credit) and CST (Not available for Input Tax Credit), under the GST regime its importance will only grow.

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